How Apple uses "Decoy effect" to upsell its pricey phones?
Apple recently launched Iphone 14 series and social media was flooded with those evergreen “have to sell kidneys to buy an Iphone” jokes. Even though Apple products are ridiculously expensive, they sell like hotcakes.
If not all some of its success can be attributed to the smart pricing strategies that it uses to upsell its pricey products and one of that strategies is - The decoy effect.
The decoy effect is when the customers shift their preference between two products when presented with a third product. The third product is known as a Decoy.
The concept was born around a decade ago when Dan Ariely, professor of Psychology and Behavioural economics at MIT, stumbled upon an ad by “The Economist” which had priced its subscription as:
Web Subscription – $59
Print Subscription – $125
Web and Print Subscription – $125
The price of subscriptions perplexed him as why would someone in their sane mind buy the print-only subscription?
To understand it, he decided to conduct an experiment on his students at MIT, he asked them to choose between the three options.
He found out that 84% of his students opted for the web and print option while only 16% chose the web-only option.
No one chose the print-only option. Then he removed the second option, and the preferences of the people shifted dramatically to 68% of students choosing the web-only option and only 32% preferring the web and print option.
He just removed the print-only option and the votes changed completely.
This happened because of the 'Decoy effect', a cognitive bias in which people’s preferences are influenced by senseless “decoy” options.
The addition of a third, less appealing decoy option can influence our choice between two options. The Print only subscription was a decoy to make the Print and Web Subscription look attractive to customers.
The decoy effect is not used to sell products, rather it is used to sell the pricer products among the lot.
Apple uses the Decoy effect for most of its products. If you have noticed, Apple has a habit of launching three variants in its Iphone series. It keeps the price of the most expensive variant quite close to the next step down.
For Instance, While an iPhone 14 costs ₹79,900, a 14 Pro costs ₹1,29,900, and a 14 Pro Max costs ₹1,39,900.
The difference in the cost of iPhone 12 and Iphone 14 Pro is around Rs. 50,000, while the difference between the price of iPhone Pro and Pro Max is around Rs. 10,000.
If someone has decided to buy an iPhone, why would they not pay an extra ₹10,000 and get the Pro Max instead?
So, just by adding an Iphone that is a little less pricey than the most expensive one, Apple has managed to increase the average price paid by customers.
To sum it up, Apple uses these biases to bend your mind into thinking, you have got a really good deal.
DisclaimerInvestment/Trading is subject to market risk, past performance doesn’t guarantee future performance. The risk of trading/investment loss in securities markets can be substantial. Also, the above report is compiled from data available on public platforms.
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